Universities as Stakeholders in their Students' Careers: On the Benefits of Graduate Taxes to Finance Higher Education
AbstractWe examine ways of funding higher education, comparing upfront tuition fees with graduate taxes. The tax dominates, as volatility in future income is transferred from risk-averse students to the risk-neutral state. However, a double moral hazard problem arises when students’ efforts to raise lifetime income and universities’ activities to improve teaching quality are endogenized. We show that graduate taxes reduce work incentives but provide incentives to improve teaching quality. Yet if tax revenues are distributed evenly among universities there is free riding. To solve this problem each university should be allocated the revenue generated by its own alumni. In addition, we demonstrate how a budget-balancing graduate tax would encourage more people to attend university than would the equivalent upfront tuition fee.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5330.
Length: 19 pages
Date of creation: Nov 2010
Date of revision:
Publication status: published in: Journal of Institutional and Theoretical Economics, 2011, 167 (4), 726-742
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Find related papers by JEL classification:
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
- I22 - Health, Education, and Welfare - - Education - - - Educational Finance
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-11 (All new papers)
- NEP-CSE-2010-12-11 (Economics of Strategic Management)
- NEP-EDU-2010-12-11 (Education)
- NEP-PUB-2010-12-11 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Gary-Bobo & Alain Trannoy, 2005.
"Efficient Tuition & Fees, Examinations, and Subsidies,"
IDEP Working Papers
0501, Institut d'economie publique (IDEP), Marseille, France, revised 01 Mar 2005.
- Gary-Bobo, Robert J. & Trannoy, Alain, 2005. "Efficient Tuition & Fees, Examinations and Subsidies," CEPR Discussion Papers 5011, C.E.P.R. Discussion Papers.
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